The Patient Protection and Affordable Care Act (PPACA), also known as Obamacare or the Affordable Care Act (ACA) was signed into law by President Barack Obama on March 23, 2010. Together with the Health Care and Education Reconciliation Act, it represents the most significant government expansion and regulatory overhaul of the U.S. healthcare system since the passage of Medicare and Medicaid in 1965.

PPACA’s stated goal is to decrease the number of uninsured Americans and to reduce the overall costs of health care. The Act has a number of mechanisms aimed at accomplishing its goals, including mandates, subsidies, and tax credits. These mechanisms apply to employers and individuals. Additional reforms are aimed at improving healthcare outcomes and streamlining the delivery of health care, this is primarily to be accomplished through Affordable Care Organizations (ACOs). The PPACA requires insurance companies to cover all applicants and offer the same rates regardless of pre-existing conditions or sex. The Congressional Budget Office projected that PPACA will lower both future deficits and Medicare spending, but the results remain to be seen and are doubted by many reviewers of the Act’s provisions.

On June 28, 2012, the United States Supreme Court upheld the constitutionality of most of PPACA in the case National Federation of Independent Business v. Sebelius.

Many of the changes under PPCA are many months away, but some elements of the new health care reform have been phased in since 2010, and many key reforms begin January 1, 2014.

One of the most sweeping changes under PPCA is the formation of ACOs. ACOs are health care entities intended to lower health care costs, improve quality outcomes and improve the experience of care. ACOs are based on the concept that each of these results can be achieved by transitioning away from volume-driven-fee-for-service based reimbursement towards payment models that reward the coordination of care and the quality of outcomes.

ACOs are in effect modern versions of health maintenance organizations comprised of doctors, hospitals and other health care providers grouped together to provide coordinated care. The ACOs like HMO’s assume financial responsibility for the cost and the quality of the care provided by the ACO.

On January 10, 2013 the Centers for Medicare & Medicaid Services (CMS) announced that 106 ACOs will join the Medicare Shared Savings Plan (MSSP). According to CMS this brings the total number of MSSP ACOs to 250 and they cover up to 4 million Medicare beneficiaries. ACOs have grown outside of the MSSP with approximately 430 ACOs in 49 states.

The standard of care in medicine is supposed to be established by medical professionals based on the presentation of the patient. However, in recent years, insurance industry payment standards have set the ceiling on permissible or allowable treatment options, thereby establishing a different standard of care. Under the ACO model, health care providers are responsible for lowering the cost of the care delivered while also increasing the quality of the care. For many years, health care decision making has been guided by the interdependencies with other medical practices, hospitals and insurance plans. The new regime would be a complete shift in approach, likely resulting in more litigation over precisely what the standard of care is, and whether providers in an ACO are more inclined to reduce the cost by failing to admit patients to the hospital, or failing to recommend expensive testing.

A benefit of the ACO system could be that if it works as intended and providers see financial incentives under the program for providing improved care and patient safety that the insurance industry could see lower medical malpractice liability. However, the liability for medical malpractice could also increase if the failure to qualify for financial incentives under the program is considered evidence of negligence.

ACOs are still a work in progress and it is too soon to determine if the model will succeed or fail. In 2013, many of the initial ACO programs will complete their first year under a risk-based ACO contract. The analysis of the programs will help influence payers, providers and policymakers determine future versions of the program. If the initial results are good, ACOs may be the health care organizations of the future and the insurance industry will need to gain a better understanding of precisely where the risks lie.